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Exercise 10-8

# Exercise 10-8 - 857,000 Cash(\$360,000 \$520,000 \$160,000...

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EXERCISE 10-8 (20–25 minutes) (a) Computation of Weighted-Average Accumulated Expenditures Expenditures Date Amount X Capitalization Period = Weighted-Average Accumulated Expenditures March 1 \$ 360,000 10/12 \$ 300,000 June 1 600,000 7/12 350,000 July 1 1,500,000 6/12 750,000 December 1 1,500,000 1/12 125,000 \$3,960,000 \$1,525,000 Computation of Avoidable Interest Weighted-Average Accumulated Expenditures X Interest Rate = Avoidable Interest \$1,525,000 .12 (Construction loan) \$183,000 Computation of Actual Interest Actual interest \$3,000,000 X 12% \$ 360,000 \$4,000,000 X 13% 520,000 \$1,600,000 X 10% 160,000 \$1,040,000 Note: Use avoidable interest for capitalization purposes because it is lower than actual. (b) Building ............................................................................ 183,000

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Interest Expense*
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Unformatted text preview: ........................................................ 857,000 Cash (\$360,000 + \$520,000 + \$160,000) . ..... 1,040,000 *Actual interest for year \$1,040,000 Less: Amount capitalized (183,000) Interest expense debit \$ 857,000 EXERCISE 10-9 (20–25 minutes) (a) Computation of Weighted-Average Accumulated Expenditures Expenditures Date Amount X Capitalization Period = Weighted-Average Accumulated Expenditures July 31 \$200,000 3/12 \$50,000 November 1 100,000 0 0 \$50,000 Interest revenue \$100,000 X 10% X 3/12 = \$2,500 Avoidable interest Weighted-Average Accumulated Expenditures X Interest Rate = Avoidable Interest \$50,000 12% \$6,000 Actual Interest \$300,000 X 12% X 5/12 = \$15,000 \$30,000 X 8% = 2,400 \$17,400 Interest capitalized \$ 6,000...
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Exercise 10-8 - 857,000 Cash(\$360,000 \$520,000 \$160,000...

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